Jurisdiction(s):
United Kingdom

Key definition

Event of default definition

What does Event of default mean? An event of default is a contractually defined trigger that, when it occurs, entitles the non-defaulting party to terminate the contract and/or exercise agreed remedies (for example, accelerate debt, enforce security, suspend performance or step in). It is not a statutory term; its meaning depends on the wording of the contract and is used across finance, commercial and derivatives documentation (for example, LMA loans and the ISDA Master agreement). Typical events include non-payment, breach of covenants or undertakings, misrepresentation, insolvency or insolvency proceedings, cross-default, illegality, change of control and material adverse change. Clauses often require notice, allow a cure or...

Project finance covenants: testing points, DSCR/LLCR/PLCR and debt/equity ratios, minimum tails, and their use in distributions, additional debt, cash lock‑up/sweep and default events

Published by a LexisNexis Banking & Finance expert

Practice notes

Financial covenants

For lenders in project finance, closely gauging a project's financial robustness is essential. In a standard project finance deal, the project typically provides the borrower’s sole revenue stream to service the debt (see Practice Note: Introduction to project finance—Concept of project finance).

Undertakings (often called 'covenants') are commitments the borrower—sometimes together with members of its group—gives to the lender about doing, or refraining from, specified actions and behaviours. For further information on undertakings in general, see Practice Note: Undertakings (covenants).

Financial covenants represent a distinct subset within those undertakings. They also require the borrower to meet, or comply with, specific financial thresholds. These financial covenants appear across a wide range of commercial finance arrangements (for broader guidance on financial covenants, including details of relevant provisions in Loan Market Association documentation and on accounting principles, including International Financial Reporting Standards (IFRS), see Practice Note: Introductory guide to financial covenants)...

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Web page updated on 21/05/2026

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